Taiwan is a great place to start a business. There are favorable laws and infrastructure in this region to support business growth. Before embarking on entrepreneurship in Taiwan, foreign investors need to decide the type of business entity to setting up a company. There are several types of companies in Taiwan to choose from, and the final choice will determine what to expect in the future. Are you confused about which enterprise to choose? You’re in luck. This piece will discuss how to choose the type of business entity in Taiwan.
How to Choose the Type of Business Entity in Taiwan: Assessing Your Business Goals and Scale
Clarify Your Business Objectives
Before selecting a business entity, it is crucial to understand your company’s overall direction and long-term objectives. Your goals will influence the most appropriate entity type. Entrepreneurs seeking a simple setup and lower costs may prefer a sole proprietorship or partnership, while those anticipating growth or foreign investment might consider establishing a limited company or a company limited by shares.
Align Entity Type with Operational Scale
The scale of your operations also plays a key role in determining your entity choice. Smaller businesses often prioritize simplicity, reduced compliance, and cost-effectiveness. Conversely, larger ventures or those with plans to attract investors need a more structured entity that supports scalability and offers legal separation between personal and business assets. Understanding how each structure aligns with your business size and ambitions ensures a smoother path for future development.
Consider the Nature of Ownership
Foreign investors should also evaluate whether they intend to establish a new local company or operate as an extension of an existing overseas business. Setting up a branch or representative office may be more suitable for companies that wish to maintain closer ties with their parent entity abroad, whereas local incorporation provides greater autonomy and a stronger local presence. By aligning your ownership structure with your long-term goals, you can ensure better strategic positioning in the Taiwanese market.
How to Choose the Type of Business Entity in Taiwan: Business Entities in Taiwan
In Taiwan, there are several types of business entities that entrepreneurs can choose from, each with its own legal structure, liability, and ownership characteristics. According to the Taiwan Company Act, the main business types in Taiwan are listed as below for your reference
Sole Proprietorship
A sole proprietorship is the simplest business entity owned and operated by a single individual. The owner assumes total personal liability for the debts and obligations of the business. While easy to set up, a sole proprietorship offers no legal distinction between the business and the owner.
Partnership
Partnerships in Taiwan are similar to sole proprietorships, but they involve two or more individuals who share the ownership and management of the business. There are two types of partnerships: general partnerships, where all partners have unlimited personal liability, and limited partnerships, where some partners have limited liability.
Limited Company (Limited Liability Company – LLC)
A limited company is a separate legal entity from its owners or parent company. It offers limited personal liability to its shareholders, meaning their harm is restricted to the amount of capital contribution they have invested. LLCs are common among small and medium-sized businesses in Taiwan.
Limited Company by Shares
A limited company by shares is also a type of company but the main difference is that the company is managed and operated by the shares. Each share has the same voting right and shared profit of the company. It is a more complex form of business entity suitable for larger enterprises. Limited companies by shares are required to have the minimum management members to be incorporated.
Branch Office
A foreign company can establish a branch office in Taiwan to conduct business operations. The branch office operates as an extension of the headquarter and is subject to the same legal liability.
Representative Office
A foreign company can also choose to establish a representative office to conduct the business in Taiwan. However, the business activities of a representative office are limited to certain items such as signing contracts, price negotiation and market research. The representative office also operates as an extension of the headquarter and is subject to the same legal liability.
Choosing the right type of business entity is a crucial decision for any entrepreneur in Taiwan. Factors such as liability, taxation, management control, and regulatory compliance should be carefully considered before making a choice. It is advisable to seek professional advice and consult legal and financial experts to determine the most suitable business entity for your specific needs and objectives.
How to Choose the Type of Business Entity in Taiwan: Understanding Taxation and Compliance Differences
Evaluate Tax Implications
Tax obligations in Taiwan vary based on the chosen business entity. Limited companies and companies limited by shares are subject to corporate income tax, whereas sole proprietorships and partnerships fall under the individual income tax system. This difference can significantly affect the total tax payable, depending on profit levels and ownership structure. Selecting an entity with favorable tax treatment for your circumstances can enhance overall cost efficiency.
Understand Foreign Investment Taxation
Foreign investors should carefully consider how their entity type influences tax exposure in Taiwan. For instance, a branch office of a foreign company is taxed on profits earned locally, while a representative office is not taxed since it cannot engage in revenue-generating activities. Understanding these distinctions helps foreign entrepreneurs avoid unexpected tax liabilities and ensures compliance with Taiwanese tax regulations.
Be Aware of Compliance Obligations
Each entity type in Taiwan carries different reporting and compliance requirements. Incorporated businesses must maintain proper accounting records and submit annual reports and may be required to undergo audits once they exceed certain financial thresholds. Smaller entities enjoy simpler compliance procedures but may have limited capacity for future expansion or external funding. Taking these obligations into account allows business owners to choose a structure that balances compliance effort with operational needs.
How to Choose the Type of Business Entity in Taiwan: Differences in Types of Business Entities in Taiwan
| Name of Enterprise | Incorporation | Commercial Activities | Taxation |
| Sole Proprietorship | It is operated by a single individual. The owner fully controls the business and is liable for all debts and obligations. | There is no specific limitation on the business activities. | Profits and losses are attributed to the owner’s personal income tax return. |
| Partnership | A partnership involves two or more individuals (partners) who jointly own and operate the business. All partners have unlimited personal liability for the partnership’s debts and obligations. | There is no specific limitation on the business activities. | Profits and losses are attributed to the owner’s personal income tax return. |
| Limited Company | A limited company is a separate legal entity from the owner(s) and offers the liability protection to protect the owner’s assets. | There is no specific limitation on the business activities. | Subject to the corporate income tax. Shareholders will be additionally subject to income tax on the profit/dividend received. |
| Limited Company by Shares | A limited company by shares is a separate legal entity from the owner(s) and offers the liability protection to protect the owner’s assets. The shares can be publicly traded on the stock market or privately held. | There is no specific limitation on the business activities. | Subject to the corporate income tax. Shareholders will be additionally subject to income tax on the profit/dividend received. |
| Branch Office | A branch office is an extension of a foreign company and is fully responsible for the branch office’s operations and liabilities. | There is no specific limitation on the business activities. | Subject to the corporate income tax. |
| Representative Office | A representative office is an extension of a foreign company and is fully responsible for the representative office’s operations and liabilities. | Can only do the contract signing, price negotiation and market research. A representative office cannot do any sales activities in Taiwan. | Not required to file the corporate income tax if no sales. |
How Can We Help
Let’s say you’ve settled on the type of enterprise you want in Taiwan; there’s still plenty to do, such as applying to the Investment Commission of Ministry of Economic Affairs, opening the bank account and company registration. You’re expected to setup your business operations smoothly, but this can be a lot of work. That’s where we come in.
Premia TNC is a top-rated business consultancy firm. They are renowned for helping small and medium businesses optimize their operations. Our experts can enhance several aspects of your business processes, including accounting, taxation, company incorporation, and work permit tasks. We will partner with you to create custom solutions for your enterprise. Contact us today to get started!
FAQs
How do I determine the proper business structure for my venture?
Consider factors such as the size of your business, the level of personal liability you are willing to assume, the number of owners or investors involved, and the type of industry you plan to operate in. Analyse the pros and cons of each business structure concerning your business goals, risk tolerance, and long-term vision to make an informed decision.
Are there specific industry regulations that may influence my choice of business structure?
Yes, certain industries in Taiwan may have specific regulations or licensing requirements that could impact the choice of your business structure, such as the Taiwan Company Act. It's crucial to research and ensure that your chosen business structure aligns with the industry's legal and regulatory framework.
What are the tax implications of different business structures in Taiwan?
Each business structure in Taiwan has its tax implications. The tax rates and deductions can vary based on the type of business and its annual revenue. Please consult with a tax professional or accountant to understand the tax implications of each business structure and its impact on your business finances.
How does the level of personal liability differ among different business structures?
The level of personal liability varies significantly among business structures in Taiwan. Sole proprietors and partners in a general partnership have unlimited personal liability. In contrast, limited companies and limited companies by shares offer the limited liability protection to their owners. A branch or representative office is the extension of the headquarter and the headquarter bear the full debt and obligation of the branch or representative office.
